ACIT, CHENNAI V. M/s. Tyco Sanmar Limited, CHENNAI

ITA 611/CHNY/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90471 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 2 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-06-2015
• Appeal Filed By: Department
• Bench Allotted: A
• Next Hearing Date: 01-06-2015
• Assessment Year: 2005-2006
• Appeal Filed On: 22-03-2012
• Court: TRIBUNAL
• Department Lawyers: P RADHAKRISHNAN
• Keywords: Retrospective amendment; Question of law
• Section: 43B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . , ! '# $ [ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D. KARUNAKARA RAO, ACCOUNTANT MEMBER ] ./ I.T.A.NO.611/MDS/2012 / ASSESSMENT YEAR : 2005-06 THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE III(2) CHENNAI VS. M/S TYCO SANMAR LTD 9, CATHEDRAL ROAD CHENNAI 600 086 [PAN AAACT 7409 H] ( %& / APPELLANT) ( '(%& /RESPONDENT) / APPELLANT BY : SHRI P. RADHAKRISHNAN, JCIT /RESPONDENT BY : SHRI VIKRAM VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 01-06-2015 ! / DATE OF PRONOUNCEMENT : 12-06-2015 / O R D E R PER D. KARUNAKARA RAO, ACCOUNTANT MEMBER: THIS IS THE APPEAL BY THE REVENUE AGAINST THE O RDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-III, CHENNAI, DATED 1.12.2011, FOR ASSESSMENT YEAR 2005-06. 2. THE GROUNDS IN THE APPEAL ARE ARGUMENTATIVE IN NATU RE AND, IN OUR OPINION, THE ISSUE RAISED IN THE GROUNDS REL ATES TO ALLOWABILITY OF ITA NO.611/12 :- 2 -: PROVISION FOR GRATUITY DEBITED TO THE PROFIT & LOSS ACCOUNT AND THE APPLICABILITY OF PROVISIONS OF SECTION 43B AND 40A( 7) OF THE ACT. 3. THE RELEVANT FACTS ARE THAT THE ASSESSEE, WHO IS E NGAGED IN THE BUSINESS AND MANUFACTURING OF SAFETY RELIEF VAL VES, FILED ITS RETURN OF INCOME DECLARING A TOTAL INCOME OF ` 12,64,00,713/-. IN THE ASSESSMENT, THE ASSESSING OFFICER QUANTIFIED THE TO TAL TAXABLE INCOME AT ` 12,85,08,706/- AND MADE VARIOUS ADDITIONS. ONE SU CH ADDITION RELATES TO PROVISION FOR GRATUITY OF ` 20,95,266/- U/S 43B OF THE ACT. OTHERWISE, THE ASSESSEE CREATED A PROVISION OF ` 50,95,266/- TOWARDS GRATUITY FUND. OUT OF THE SAME, ` 30 LAKHS WAS ALREADY PAID BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME, LEAVING TH E BALANCE PAYABLE AT THE RELEVANT DATE. THE ASSESSING OFFICER INVOKED T HE SECOND PROVISO TO SECTION 43B OF THE ACT AND DISALLOWED ` 20,95,266/- IN THE ASSESSMENT. HOWEVER, THE ASSESSEE RELIED UPON THE PROVISIONS OF SECTION 40A(7)(B) OF THE ACT IN SUPPORT OF ALLOWING THE ENTIRE CLAIM OF ` 50,95,266/-. 4. DURING THE FIRST APPELLATE PROCEEDINGS, THE ASSES SEE RELIED ON VARIOUS DECISIONS, WHICH ARE MENTIONED IN PARA 4 , 4.1 AND 4.2 OF THE IMPUGNED ORDER. THE CIT(A) HAS RELIED ON THE SAID DECISIONS FOR THE PROPOSITION THAT THE PROVISIONS OF SECTION 40A( 7)OF THE ACT TAKE PRECEDENCE OVER THE GENERAL PROVISIONS OF SECTION 4 3B OF THE ACT. SOME OF THE DECISIONS RELIED ON BY THE CIT(A) AND T HE ASSESSEE ITA NO.611/12 :- 3 -: INCLUDE CIT VS COMMONWEALTH TRUST (I) LTD, 269 ITR 290 (KER.), GEORGE WILLAMSON (ASSAM) LTD VS CIT, 228 ITR 343(GA U) AND CIT VS BECHTEL INDIA (P) LTD 97.11.2007) ETC. THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. AGGRIEVE D WITH THE SAME, THE REVENUE IS IN APPEAL BEFORE US. 5. BEFORE US, THE LD. DEPARTMENTAL REPRESENTATIVE RELI ED ON THE ORDER OF THE ASSESSING OFFICER. 6. PER CONTRA, THE LD. COUNSEL FOR THE ASSESSEE RELIED ON THE DETAILED FINDING GIVEN BY THE CIT(A) IN PARAS 4, 4. 1. AND 4.2 OF THE IMPUGNED ORDER AND THE DECISIONS CITED IN THE SAID PARAGRAPHS. FURTHER, THE LD. COUNSEL FOR THE ASSESSEE FILED A C OPY OF THE ORDER OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE IN I.T.A. NO.1551/MDS/2014 FOR ASSESSMENT YEAR 2007-08 DATED 12.12.2014, AND S UBMITTED THAT SIMILAR ISSUE CAME UP FOR ADJUDICATION BEFORE THE T RIBUNAL. RELYING ON THE DECISIONS OF CIT VS COMMONWEALTH TRUST (P) LTD (SUPRA) AND CIT VS BECHTEL INDIA (P) LTD (SUPRA), THE ASSESSEE WAS GR ANTED RELIEF ON THE VERY SAME ISSUE. 7. WE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF THE REVENUE AS WELL AS THE JUDGMENTS CITED BEFORE US. ON A PERUSAL OF PARA 4.2 OF THE CIT(A)S ORDER AS WELL AS PARAS 5 T O 8 OF THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR ASSESS MENT YEAR 2007-08 ITA NO.611/12 :- 4 -: (SUPRA), WE FIND THE ISSUE HAS TO BE DECIDED IN FAV OUR OF THE ASSESSEE AND AGAINST THE REVENUE. FOR THE SAKE OF COMPLETEN ESS OF THIS ORDER, WE REPRODUCE BELOW PARAS 5 TO 8 OF THE ORDER OF THE TRIBUNAL: 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUT HORITIES AND THE DECISIONS RELIED ON. THE ASSESSEEDURING THE RELEVA NT ASSESSMENT YEAR 2007-08 CREATED PROVISION OF ` 32,54,120/- TOWARDS GRATUITY WITH LIC OF INDIA. THIS FUND WAS APPROVED BY THE COMMISS IONER OF INCOME TAX. THE ASSESSING OFFICER DISALLOWED THE SAID PROV ISION FOR GRATUITY FOR THE REASON THAT ASSESSEE DID NOT PAY THE SAID G RATUITY DURING THE ASSESSMENT YEAR 2007-08. THE ASSESSING OFFICER WAS OF THE VIEW THAT SINCE THE ASSESSEE HAS MADE ONLY A PROVISION THE SA ME IS NOT ALLOWABLE IN VIEW OF THE SPECIFIC PROVISIONS OF SEC TION 43B OF THE ACT. THE COMMISSIONER OF INCOME TAX (APPEALS) DELETED TH E DISALLOWANCE FOLLOWING THE ORDERS PASSED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2005-06 & 2006-07 BY ORDERS DATED 01.12.2011 & 01.02.2013 RESPECTIVELY. IT WAS THE SUBMISSION OF THE COUNSEL THAT NO FURTHER APPEAL WAS PREFERRED BY THE REVENUE AND THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) WAS ACCEPTED. ON A PERUSAL OF THE DECISIONS RELIED ON BY THE ASSESSE, WE FIND THAT THIS ISSUE HAS BEEN CONSIDERED BY VARIOUS HIGH COURTS AND HELD TH AT THE PROVISION MADE BY THE ASSESSEE TOWARDS CONTRIBUTION TO APPROV ED GRATUITY FUND IS AN ASCERTAINED LIABILITY AND IS ALLOWABLE AS DED UCTION UNDER SECTION 40A(7)(B)OF THE ACT. IT WAS FURTHER HELD THAT THE P ROVISIONS OF SECTION 40A(7)(B) OVERRIDES SECTION 43B OF THE ACT. SIMILA R VIEW WAS ALSO TAKEN BY THE THIRD MEMBER OF JAIPUR BENCH OF THIS T RIBUNAL IN THE CASE OF MEWAR SUGAR MILLS LTD. VS. DCIT (SUPRA). 6. THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS. COMMON WEALTH TRUST (P) LTD &ANR. (SUPRA) HELD AS UNDER:- SECTION 40A(7) OF THE INCOME-TAX ACT, 1961, WAS INTRODUCED BY THE FINANCE ACT, 1975, WITH RETROSPECTIVE EFFECT FROM APRIL 1, 1973, AND SECTION 43B WAS INTRODUCED BY THE FINANCE ACT, 1983, WITH EFFECT FROM APRIL 1, 1984. SECTION 40A SAYS THAT THE PROVISIONS OF THIS SECTION SHALL HAVE EFFECT NO TWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN ANY OTHER PRO VISION OF THE ACT RELATING TO THE COMPUTATION OF INCOME UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION'. SIMILARLY, SECTION 43B OPENS WITH A NON OBSTANTE CLAUSE. SECTI ON 40A(7) PROVIDES THAT IN CASES COVERED BY THE PROVISIONS OF CLAUSE (A) NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF ANY PRO VISION WHETHER CALLED AS SUCH OR BY ANY OTHER NAME MADE BY THE ASSESSEE FOR THE PAYMENT OF GRATUITY OF HIS EMPLOYEES ON THEIR RETIREMENT OR ON TERMINATION OF THEIR EMPLOYMENT FO R ANY REASON. HOWEVER, CLAUSE (B) OF SECTION 40A(7) CLEAR LY PROVIDES ITA NO.611/12 :- 5 -: THAT TO ANY PROVISION MADE BY THE ASSESSEE FOR THE PURPOSE OF PAYMENT OF A SUM BY WAY. OF ANY CONTRIBUTION TOWARD S AN APPROVED GRATUITY FUND, OR FOR THE PURPOSE OF PAYME NT OF ANY GRATUITY, THAT HAS BECOME PAYABLE DURING THE PREVIO US YEAR CLAUSE (A) WILL NOT APPLY. THIS MEANS EXCEPTION HAS BEEN CARVED OUT IN RESPECT OF PAYMENT OF SUMS BY WAY OF ANY CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND. THU S THE LEGISLATURE WANTED TO GIVE A SPECIAL TREATMENT TO P ROVISION MADE BY AN ASSESSEE FOR THE PURPOSE OF PAYMENT BY W AY OF ANY CONTRIBUTION TOWARDS AN APPROVED GRATUITY FUND. THIS HAS TO BE TREATED AS A SPECIAL PROVISION. THE MARGINAL NOTE TO SECTION 43B CLEARLY SAYS 'CERTAIN DEDUCTIONS TO BE ONLY ON ACTUAL PAYMENT'. IT DEALS WITH VARIOUS ITEMS. SECTION 43B(B) DEALS GENERALLY WITH ANY SUM PAYABLE BY THE ASSESSE E AS AN EMPLOYER BY WAY OF CONTRIBUTION TO ANY PROVIDENT FU ND AT SUPERANNUATION FUND OR GRATUITY FUND OR ANY OTHER F UND FOR THE WELFARE OF THE EMPLOYEES. OF COURSE, THE GRATUITY F UND IS ALSO REFERRED TO. SECTION'40A(7), CLAUSE (B), PARTICULAR LY SUB-CLAUSE (I), THEREOF IS A SPECIAL PROVISION IN REGARD TO A CLAIM FOR DEDUCTION BASED ON A PROVISION MADE FOR PAYMENT TOW ARDS I1N APPROVED GRATUITY FUND. THERE IS NO CLEAR INCONSIS TENCY BETWEEN THE TWO PROVISIONS, VIZ., SECTIONS 40A(7) A ND 43B. SECTION 40A(7) IS IN NEGATIVE TERMS AND SECTION 43B IS IN POSITIVE TERMS, THE EFFECT OF BOTH THESE PROVISIONS IS THAT IN ORDER TO CLAIM DEDUCTION IN RESPECT OF PAYMENT TO A GRATUITY FUND THERE MUST BE ACTUAL PAYMENT AND THAT DEDUCTIO N CANNOT BE ALLOWED ON THE BASIS OF ANY PROVISION. THE ONLY EXCEPTION TO THE ABOVE RULE IS WITH REGARD TO THE PROVISION FOR PAYMENT TO AN APPROVED GRATUITY FUND. IT CANNOT BE INTERPRETED THAT THE LATER PRO VISION IN SECTION 43B BY INTRODUCING THE NON OB STANTE CLAUSE WOULD ABROGATE THE SPECIAL PROVISION WITH RE GARD TO THE PROVISION MADE FOR PAYMENT TO AN APPROVED GRATUITY FUND CONTAINED IN SECTION 40A(7)(B)(I). THIS IS ALL THE MORE SO SINCE NO PATENT CONFLICT OR INCONSISTENCY CAN BE SPELT OUT. BOTH THE PROVISIONS CAN CO-EXIST . A HARMONIOUS CONSTRUCTION OF THE TWO PROVISIONS WOULD CLEARLY INDICATE THAT THE LEGISLAT URE NEVER INTENDED TO TAKE AWAY THE BENEFIT CONFERRED UNDER C LAUSE (B) OF SECTION 40A(7) BY THE PROVISIONS OF SECTION 43B(B). 7. THE HONBLE DELHI HIGH COURT IN THE CASE OFCIT V S. BECHTEL INDIA (P) LTD. (SUPRA) HELD AS UNDER: 6. FURTHER, WE ARE IN AGREEMENT WITH THE TRIBUNAL THAT S. 40A(7)(B) OF THE ACT WILL HAVE AN' OVERRIDI NG EFFECT OVER S.43B OF THE ACT. IN THE FIRST PLACE SECTION 40A(1) IS AN UNEQUIVOCAL NON-OBSTANTE CLAUSE AND SINCE S. 40A(7)(B) SPECIFICALLY PERMITS A DEDUCTION OF A SUM CONSTITUTING THE PROVISION ITA NO.611/12 :- 6 -: TOWARDS AN APPROVED GRATUITY FUND, THE SAID PROVISION WILL TAKE PRECEDENCE OVER A COMPARATIVELY GENERAL PROVISION LIKE S. 43B. SECONDLY, S. 40A(7)(A) WHICH DISALLOWS DEDUCTION OF ANY PROVISION OF GRATUITY TO EMPLOYEES ON THEIR RETIREMENT IS ITSELF MADE SUBJECT TO S. 40A(7)(B) WHICH ALLOWS SUCH DEDUCTION AS LONG AS IT IS MADE TOWARDS AN APPROVED GRATUITY FUND. THERE IS NO DISPUTE THAT IN THE INSTANT CASE THE PROVISION MADE IS TOWARDS CONTRIBUTION TO AN APPROVED GRATUITY FUND. THEREFORE THE CLAIM BY THE ASSESSEE FOR DEDUCTION ON THIS SCORE WAS CLEARLY JUSTIFIED. WE ARE ACCORDINGLY OF THE OPINION THAT N O SUBSTANTIAL QUESTION OF LAW ARISES IN THIS REGARD A S WELL. 8. RESPECTFULLY FOLLOWING THE SAID DECISIONS, WE UP HOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELE TING THE DISALLOWANCE MADE FOR APPROVED GRATUITY FUNDS. 8. ON PERUSAL OF THE ABOVE, WE FIND THAT THE ISSUE ADJ UDICATED BY THE TRIBUNAL FOR THE ASSESSMENT YEAR 2007-08 IS IDENTICAL IN PRINCIPLE TO THE ONE RAISED IN THIS APPEAL. IT IS THE DECISION OF THE TRIBUNAL THAT PROVISIONS OF SECTION 40A(7) TAKE PRE CEDENCE OVER THE PROVISIONS OF SECTION 43B OF THE ACT. THEREFORE, R ESPECTFULLY FOLLOWING THE SAID DECISION OF THE TRIBUNAL, WE FIND THAT THE ORDER OF THE CIT(A) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY INTERFERENCE. ACCORDINGLY, GROUNDS RAISED BY THE REVENUE ARE DIS MISSED. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED. ITA NO.611/12 :- 7 -: ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH OF JUNE, 2015, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( . ) (D. KARUNAKARA RAO) ! / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED: 12 TH JUNE, 2015 RD &' ()*) / COPY TO: 1 . / APPELLANT 4. + / CIT 2. / RESPONDENT 5. ),- . / DR 3. +/' / CIT(A) 6. -01 / GF